4.26 Fibonacci – A recap by Q&A


Q. What’s a swing high?


A. A candlestick with at least two lower highs on both the left and right of it.


Q. What’s a swing low?


A. A candlestick with at least two higher lows on both the left and right of it.


Q. What are Fibonacci retracement levels?


A. Levels of support and resistance which offer entry points for trades in the direction of the original trend.


Q. Important Fib retracement level percentages?


A. 23.6, 38.2, 50.0, 61.8 and 76.4.


Q. What are the profit targets for the positions taken at various retracement levels and where we should put the stop-loss?


A. The next retracement level can be the stop-loss order level and the previous retracement level can be the first profit target. For example during an uptrend if you enter a long position near 61.8% retracement level then you can put a stop-loss a few pips below 76.4% retracement level and the first target can be 50% retracement level, second target 38.2% and then 0% i.e. from where the retracement started.


Q. What are Fibonacci extension levels?


A. Levels of potential support and resistance suitable as profit targets once the retracement gets over and the original trend resumes.


Q. Important Fib extension level percentages?


A. 138.2, 150.0, 161.8, 200, 161.8 and 261.8%


Q. What if the retracement does not prove to be just a retracement and a reversal takes place?


A. This is the reason that it is always advisable to check the strength of the trend and how long the trend has been in place. It is also advisable to realize profits on half of your position considering possible reversal, without waiting price to go to extension levels.


Q. Other tools that can be combined with Fibonacci?


A. Trend lines, candlesticks and support and resistance levels.


Q. When you should avoid using Fibonacci retracements?


A. Fibonacci retracement should be avoided when market has been running sideways and without any good trend.


Q. What are the main factors on which amount or percentage of retracement depends?


A. Strength of the trend and how long the trend is in place. Strong trend which have been in place for short time may end up in having shallow retracements. Please check the lesson about the finer points of Fibonacci.


Q. Fibonacci retracement levels remain flat over the time. Are there any Fib tools which take “time” into account?


A. Yes, Fibonacci Arcs and Fibonacci Fan factor the time element and these levels change with passing time.


Q. Which tool indicates possibilities of reversal or major market moves?


A. Fibonacci time zones. This tool breaks the chart into time zones and indicates at what areas, on time axis, we can anticipate a reversal or some major market moves.




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